This paper is part of a broader project that provides a microfoundation to the General Theory of J.M. Keynes. I call this project 'old Keynesian economics' to distinguish it from new-Keynesian economics, a theory that is based on the idea that to make sense of Keynes we must assume that prices...

We explore the transmission mechanism of income inequality to output. In the short run, higher inequality reduces output because marginal propensities to consume are negatively correlated with incomes, but this effect is quantitatively small in the data and in our model. In the long run, the...

The notion that business cycles are driven by demand shocks is subtle. I first review some of the conceptual and empirical challenges faced when trying to accommodate this notion in micro-founded, general-equilibrium models. I next review my own research, which sheds new light on the observed...

Aggregate housing demand shocks are an important source of house price fluctuations in the standard macroeconomic models, and through the collateral channel, they drive macroeconomic fluctuations. These reduced-form shocks, however, fail to generate a highly volatile price-to-rent ratio that...

dramatically with aggregate annuity purchases reaching $159.3 billion in 1995. While many annuities are job-related, by 1994 individual annuity purchases outside of job-related retirement plans had grown to $51 billion. This paper uses state-level data on annuity premiums for 1984-93 to explore...

We present a new multi-sector growth model that features nonhomothetic, constant-elasticity-of-substitution preferences, and accommodates long-run demand and supply drivers of structural change for an arbitrary number of sectors. The model is consistent with the decline in agriculture, the...

We show that sentiments - self-fulfilling changes in beliefs that are orthogonal to fundamentals - can drive persistent aggregate fluctuations under rational expectations. Such fluctuations can occur even in the absence of any exogenous aggregate fundamental shocks. In addition, sentiments also...

Interstate Highway openings were permanent, anticipated demand shocks that increased gasoline demand and sometimes shifted it spatially. We investigate supply responses to these demand shocks, using county-level observations of service station counts and employment and data on highway openings'...

We explore the consequences of safe asset scarcity on aggregate demand in a stylized IS-LM/Mundell Fleming environment. Acute safe asset scarcity forces the economy into a “safety trap” recession. In the open economy, safe asset scarcity spreads from one country to the other via capital...

This paper develops and analyzes a general-equilibrium model with sticky information. The only rigidity in goods, labor, and financial markets is that agents are inattentive, sporadically updating their information sets, when setting prices, wages, and consumption. After presenting the...